Sensorineural hearing impairments in general, and recruitment of loudness in particular, have not been successfully treated with currently available hearing aids. To date, these aids most amplify sounds, often on a frequency dependent basis. Analog wideband and multiband aids employing amplitude compression have met limited success. Digital signal processing provides greater flexibility and less distortion in compensating for hearing impairments. The goal of this research is to develop a digital hearing aid device which incorporates state-of-the-art digital signal processing. The specific aim during Phase I of this effort is to develop a real-time micro-processor implementation of a system designed to compensate for recruitment of loudness in sensorineural hearing losses. The sinusoidal model of speech is used in a time-varying, frequency-dependent system which incorporates a model of the interaction of sinusoidal maskers in both normal-hearing and hearing-impaired individuals. The processing approximately compensates for both the impaired subject's reduced dynamic range of hearing and the accompanying abnormal spread of masking while maintaining the overall spectral relationships. With the aid of a real- time system, research can be performed to study the feasibility of using this compensation system in a commercially available hearing aid device.